PENSION CRISIS: What is a commuter tax?

The commuter tax is a common option for municipalities in the state's Act 47 distressed cities program to generate additional revenue.

The municipality must seek county Court of Common Pleas approval annually to levy the tax above statutory limits. If the tax is imposed, a city is required to levy a resident tax higher than the one on nonresidents.

Act 511, the Local Tax Enabling Act, is the underlying law that allows school districts and municipalities to impose earned income tax. The limit is 1 percent, which is to be shared equally.

Since its enactment in 1965, there have been a number of other statutes that permit the limit to be exceeded, said Fred Reddig, executive director of the state's Center for Local Government Services. Under the Occupation Tax Elimination Act, many school districts imposed EIT rates at levels higher than 1 percent.

For example, Central Dauphin's rate is 2 percent. The idea of a commuter tax for debt-ridden Harrisburg was discussed as the initial recovery plan was being crafted. But due to higher rates already in effect in many of the surrounding municipalities, it was dismissed, Reddig said.

Municipalities with distressed pension systems under Act 205 also may pursue raising the EIT on commuters to help the pension fund. Home rule authorizes higher levies on residents, and there also are provisions for higher wage taxes through referenda for open space preservation, Reddig said.

Last year, the state changed the Act 47 law to prohibit the use of a commuter tax for third-class cities that end up in a state of fiscal emergency or receivership after failing to adopt or implement recovery plans. The stalemate over a recovery plan in Harrisburg prompted the amendment.

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Jason Scott

Jason Scott covers state government, real estate and construction, media and marketing, and Dauphin County. Have a tip or question for him? Email him at jscott@cpbj.com. Follow him on Twitter, @JScottJournal.
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